Application won't install because "specified path does not exist" on Windows XP SP2 machine

Hello,
I've got a Windows XP SP2 machine which won't install a piece of payroll software correctly.  When you run setup.exe, it immediately gives me the error that the "specified path does not exist".  It's referring to the path of the setup.exe.  I've also noticed that when I go to log off the user, there is an ntvdm.exe error stating the "Application failed to initialize properly (0xc0000142)" error.  If I tried running the setup a number of times, there will be a corresponding number of ntvdm.exe errors at logoff.

It seems that there is a problem with the install program working correctly (on this machine only) or maybe the virtual dos machine got corrupted somehow.  Now, here is what I've done already:

Attempted to use different Administrator accounts to load the software - get the same error
Copied source to local hard drive and attempt install (making sure security permissions were removed) - get the same error
Ran software install successfully on another fully patched Windows XP SP2 machine (in the same domain).

Right now it seems I'm in trouble on this one.  I've eliminated the user accounts as being a factor (and there are no domain permissions restricting this) plus I've been able to load the software on other similar machines without a problem.  Do I have a problem in Windows on this machine only or is there anything else I can look at?

Any help is appreciated.

Thanks.